Because the title implies, penny shares are shares of corporations that commerce at costs lower than Rs 10. Such shares are extremely unstable in nature, and often carry numerous risks, largely on account of insufficient liquidity, lack of correct details about the business and smaller numbers of shareholders.
Penny shares are fickle in nature, have smaller market capitalisations and are vulnerable to manipulation. So if there’s a worth rise in such shares, it could so occur that an investor will be unable to promote his shares till the worth drops once more.
What makes penny shares so low cost?
One motive is perhaps the truth that the corporate is new within the trade and doesn’t have a protracted monitor document that may lure buyers. The opposite logical motive is that the inventory now not holds worth, which could possibly be the results of a wide range of causes reminiscent of losses within the enterprise, poor efficiency, company governance points, and so forth.
Typically the inventory of a serious enterprise might drop sharply and grow to be dust low cost due to short-term misery, and good buyers typically decide these varieties of companies to wager on, hoping for a turnaround or buyout.
Which may repay as properly, however the threat is, adopting a ‘purchase and maintain’ strategy in such circumstances also can depart an investor holding such shares for lengthy if the enterprise goes into stagnation.
What are the dangers concerned?
Dangers and rewards go hand in hand in investing. Good penny shares would possibly ship if you’re able to take the prospect. Good revival tales do find yourself making their shares multibaggers.
Investing in penny shares ought to at greatest be handled as shopping for a lottery ticket, and an excessive amount of expectations would possibly lead to an enormous loss. The capital invested in such shares ought to by no means be greater than 2-3 per cent of a portfolio.
Some penny shares belong to corporations which can be dangling on the sting of insolvency or carry the potential of shutdown. In such circumstances, your funding, massive or small, would possibly by no means come again.
So, are penny shares definitely worth the threat? Frankly, no.
However when you discover a good enterprise, which can be going by means of a brief misery or disruption and might develop conviction concerning the prospects of a bounceback, it could be definitely worth the threat to take an publicity. Bear in mind, such revival tales invariably ship multibagger returns.
Penny shares are extra advisable for buyers who dwell by buying and selling or those that perceive market fundamentals. They’re the individuals who can understand administration behaviour, financials and trade conditions higher.
However such shares are a whole no-no for retail buyers who fancy them merely due to the small price ticket. Bear in mind, Mr Market is smarter than you. It is rather unlikely that you’ve got been capable of spot a goldmine that all the universe of market participants has missed out.
(Nitin Shahi is Government Director of Findoc Monetary Companies Group. Views are his personal)